Blackwells Capital LLC, an active investor in Peloton Interactive, called for Peloton’s board to sell the company and blasted Peloton’s new CEO as well as its founder.
The alternative investment management firm that owns about five percent of Peloton published a report on April 13 offering reasons for a sale and saying that new Peloton CEO Barry McCarthy had failed to galvanize shareholder support, address the severe and lingering governance issues facing the company, or justify Peloton’s independence.
In January, Blackwells originally called for a sale of Peloton and removal of John Foley, who was CEO at that time. Foley since was promoted to executive chairman, and McCarthy came out of retirement to take on the CEO role. McCarthy received a $275 million sign-on compensation package.
In McCarthy’s first 60 days as CEO, Peloton stock has lost nearly $2 billion in market value for shareholders, Blackwells said.
In addition to expressing dissatisfaction with McCarthy, Blackwells also took Foley to task saying that he appears to be in financial distressed selling on Feb. 28 about $50 million in the company’s stock at a 12 percent discount to MSD Partners, an investment firm backed by Michael Dell.
A new strategic owner would allow Peloton to be reimagined and grow, and a sale could bring shareholders at least $74 per share, according to the company’s presentation, which noted that Apple, Amazon, Google, Netflix and Nike could be potential buyers due to complementary businesses.
In the presentation, Blackwells described a re-imagined Peloton that is high growth, high margin and asset light. Blackwells noted that achieving the transition to this business model while remaining public is fraught with challenges. Several strategic buyers would be willing to pay a significant premium for the opportunity to execute on this vision, according to Blackwells.
Jason Aintabi, chief investment officer of Blackwells, issued the following statement: "Two months have passed since John Foley was promoted into the role of Executive Chairman and Barry McCarthy came out of retirement to assume the post of CEO. Remarkably, shareholders are worse off now than before. Having provided Mr. McCarthy a $275 million sign-on compensation package, they remain at the whim of former CEO John Foley, who appears financially distressed — and a forced seller of the company’s stock — even while he still controls the company.”
Peloton will continue to be poorly valued for as long as a close-knit group of insiders, who have proven themselves incapable of creating value, continue to wield voting power far in excess of their economic interest, Aintabi said.